The American Economy Just Dodged A Bullet… For Now
Peter Reagan

You may have heard about the East Coast dockworkers’ strike that, fortunately, only lasted for three days. Considering the strike was simply postponed until January, it’s worth a look at what such a black swan event will have on the average American’s cost of living. You need to understand what’s at stake – and how to protect your family and yourself…

The evening news, 24 hour news channels, and news sites online have all been running stories about labor strikes, especially the dockworker’s union three-day strike, over the last few weeks. 

And with good reason. Labor strikes, besides being human interest stories, have a long-term impact on everyday Americans. Not just the strikers.

Many people don’t realize just how much of an effect labor disputes and outright work stoppages can have on the economy. There’s a lot at stake – and it’s vital to understand the impacts before the January 15 deadline rolls around… 

What kinds of economic effects can we expect?

If you’re not familiar with the interconnected nature of the economy, one of the first things to realize is that every hand that handles the products that you buy at Amazon or at your local WalMart, Publix, or Kroger, has to include a bit of their own cost in that product when it leaves their hands.

That makes sense, right? They have to mark it up, at least a bit, in order to bring home the bacon so that they can eat and sleep indoors.

But these extra bits of markup everytime that a product changes hands is why so many companies are looking for ways to be more efficient and to save on labor costs. Why labor costs? It’s because, for most businesses, payroll is the single biggest cost that they have.

This is one of the most common drivers of the struggle between companies and workers. Both want to make more money. But that means making what they sell more expensive which can mean lower sales if competitors find ways to save money and, therefore, sell their product or service for a lower price.

Many people frame this whole conversation about workers and companies as the companies simply being greedy. 

And there’s no question that the companies want to make a profit. Even if they have altruistic goals (and not all do), they still have to bring in money to keep the doors open and employees paid. To quote Catholic nun Sister Irene Kraus, who ran a network of 80 non-profit hospitals in the middle of last century, “No margin, no mission.” Profit has to be there or the company goes out of business.

But before you blame everything on corporations, let’s take a look at the other side of things.

What dockworkers are demanding

So, let’s start with what dockworkers are actually making, now. Paul Berger, writing for The Wall Street Journal, made this point:

In the fiscal 2019-2020 year, when ILA base pay reached $36, more than half of 3,726 dockworkers at the New York-New Jersey port earned over $150,000, according to a report by the port’s regulator. Some 665 dockworkers that year earned more than $250,000.

To be fair, not all dockworkers are reporting wages that high with some saying that they are struggling to get $70,000 per year. In a low cost of living area, though, $70,000 can take care of a family, not in style, but without missing any meals.

Now that you know where they’re starting from, we get to what may surprise you: what they’re demanding. Again, from Berger:

[International Longshoremen’s Association President Harold] Daggett wants to raise the ILA workers’ base hourly rate over six years to $69 from $39. 

That’s right, they’re demanding to nearly double their pay over the next six years. 

Maybe $250,000 isn’t enough anymore, and they need a half-million dollars a year for their highest-paid dockworkers…

Let’s not be unfair to them, though. It’s very much human nature to want to bring in the most income possible for the same amount of work.

And, of course, your overall view of unions and corporations will likely color in your mind how you view this strike. 

For what we’re talking about today, though, while it’s important for you to understand the different aspects of the situation, your viewpoint on who is to blame for the strike doesn’t matter. That won’t change what is the effect of a strike like this on our economy which is the real issue that you need to get your head around.

What this strike would’ve done (and could still do) to the U.S. economy

This is really why a strike like this should concern you. Whoever you think is to blame for the strike, a strike like this would have a devastating impact on our economy.

And you probably don’t really realize how bad it could have been.  Elizabeth Guevara, writing at Investopedia, gives us these details:

The 14 ports where the dockworkers walked out handle more than 68% of the country’s imports.

That’s a huge part of the economy to suddenly stop. Over ⅔ of imports. To give you an idea of how much that would hurt the economy, Guevara writes,

The start of a strike by dockworkers in ports from New England to Texas could cost the U.S. economy up to $4.5 billion daily and reignite inflation.

$4.5 billion daily.

And Tobias Burns over at The Hill says that it could be worse:

Labor and business experts told The Hill that the strike could cost as much as $5 billion per day.

$5 billion per day.

And just in case that you still think that is no big deal, consider this scary bit of information: some speculated that the dockworkers’ strike, if it had continued, would have destroyed supply chains to a state as bad or worse than during the COVID pandemic.

That’s not exactly what anyone wants to see going into the upcoming holiday season (or any other time of the year, for that matter).

We’re not out of the woods yet

Sure, the dockworkers have agreed to suspend their strikes, which means that my local grocery store may have toilet paper back in stock in a couple of days. Maybe.

This isn’t the end of the situation, though. Tom Krisher for yahoo!finance writes,

The union representing 45,000 striking U.S. dockworkers at East and Gulf coast ports reached a deal Thursday to suspend a three-day strike until Jan. 15 to provide time to negotiate a new contract.

Translation: We’ll be looking down the barrel of this gun again in mid-January 2025, just over three months from now.

Maybe dockworkers and companies will get this resolved by then. Maybe they won’t.

What is certain is that human nature, being what it is, will see both sides pushing for things which will make buying what you and I want and need more expensive.

It’s the average American who suffers the long-term impact of these strikes and the pay and benefit hikes that always seem to come out of them just drive up the prices that we have to pay in the rest of the country..

Your best defense against unexpected economic developments 

Here’s the thing about events like this: They come out of nowhere. We don’t know how long they’ll last. We can’t even be certain of their economic impacts. The global economy is simply too large, too complex and too interdependent to anticipate, in advance, the consequences of unexpected events. (It’s like that old story – for want of a horseshoe nail, a kingdom was lost.)

WIth all of the turmoil these days, do you have any realistic options to protect yourself and your family from the consequences?

One option some people will choose is to become as self-sufficient as possible. To go completely off the grid. Maybe that’s something you can consider as part of your plan – but for most of us, it’s simply not practical. (Even then you’ll need access to things you just can’t make for yourself – whether it’s antibiotics, a solar panel or a replacement carburetor for a 1985 F-150.)

I don’t believe you need to become a hermit to insulate yourself and your family from the effects of economic volatility. Instead, position your finances to give you the stability and certainty you can’t get from the economy. Stability and certainty are rare in the world of finance – unless you look into physical precious metals. Owning physical gold and silver helps you maintain your purchasing power against inflation – and provide stability during times of economic uncertainty (and crisis). 

 

 

Peter Reagan is a financial market strategist at Birch Gold Group. As the Precious Metal IRA Specialists, Birch Gold helps Americans protect their retirement savings with physical gold and silver.

 

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